Bhutan: Economy

Growth increased slightly on pickups in construction of hydropower and manufacturing. With most temporary import and credit restrictions lifted, new monetary and fiscal policy mechanisms have been in place in Bhutan to manage excessive demand. The outlook is for rapid growth as new large projects are built to generate more hydropower for export. The current account deficit will be substantial, reflecting construction imports, but large capital inflows and cautious demand management are expected to sustain a surplus in the overall balance of payments.

Selected Economic Indicators (%) - Bhutan 2015 2016
GDP Growth 6.8 7.0
Inflation 7.0 6.8
Current Account Balance (share of GDP) -30.6 -30.6

Source: ADB estimates.

Economic performance

Bhutan’s economy expanded in Fiscal Year 2014 (ended 30 June 2014) at an estimated 4.0%. This is up from 3.5% a year earlier but remains below the long-term growth rate of nearly 8.0%. The boost came from growth in industry and construction, mainly in hydropower, which comprises about a third of economic activity. Sales of cement, one of the country’s few industries, recovered from a contraction last year, reflecting stronger performance in construction as well as manufacturing. The value of electricity output grew on higher power tariffs and despite hydropower production falling slightly.

Economic prospects

Economic recovery is set to continue, and high growth rates are projected over the next 2 years. The industry sector, comprising about four-tenths of the gross domestic product, will continue to drive the economy, bolstered by the construction of new hydropower including the Nikachhu and Kholongchhu plants and increased electricity output from the new Dagachhu plant, which opened early this year.

Excerpted from the Asian Development Outlook 2015.